Dave Nicoski ...
  • Ross LaDuke
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Vermilion Compass: Weekly Equity Strategy

Outlook deteriorating; Upgrading Staples

Throughout last week the U.S.-China tariff escalation and market action did not result in material changes to our outlook. That is, until yesterday (Monday), when the market opened down and moved lower throughout the day, and several key developments that were instrumental in our positive outlook made a turn for the worse. Below we highlight several negative developments which lead us to a more cautious outlook.

• Consumer Staples upgrade; RS improving for defensive areas. We are upgrading Consumer Staples to market weight due to RS bullishly inflecting topside resistance -- add selective exposure. Actionable Staples stocks highlighted: GIS, CPB, EL, and THS. As far as defensive areas go, RS has also improved for Utilities (XLU), Real Estate (XLRE, VNQ), and precious metals (GLD, GDX, GDXJ), something we view as negative for the broad market because it shows investors are becoming increasingly risk averse... see pages 2-5 for additional comments and charts.

• MSCI EM, MSCI China indexes breaking down. Bottoming price action for EM & China has been a focal point in leading to our previously positive outlook. With both indexes breaking down we have become more cautious as we believe they may bring U.S. markets down as well... see page 6.

• Additional negative developments: Steep price and RS uptrends are breaking down for Technology (XLK, RYT). Copper and the copper to gold ratio are showing signs of breaking down, a negative for the global growth outlook.

• It is not all bad. We certainly are not running for the hills, because there is a lot that is still going “right” for the market. The 10 to 2's Treasury yield spread still shows signs of breaking above a ~2.5-year downtrend. High yield spreads are not raising major red flags. Homebuilders (ITB) and semiconductors (SOXX, XSD) remain leadership and are above key support. Financials (XLF, RYF) still exhibit signs of bottoming. Industrials (XLI) are not breaking down. Neither are crude oil prices... see page 7.

In today's report we highlight attractive Groups and stocks within Consumer Staples and Materials: CS-10 Meat & Poultry, MA-26 Gold, Western Hemisphere, Large-Cap, and MA-29 Gold, South Africa... see pages 14-23.
Agnico Eagle Mines

Agnico-Eagle Mines is a gold mining company with mining operations in Canada, Mexico and Finland. Co. earns a proportion of its revenues from the production and sale of gold in both dore bar and concentrate form. The remainder of revenue and cash flow is generated by the production and sale of byproduct metals. The revenue from byproduct metals is mainly generated by production at the LaRonde mine in Canada (silver, zinc, copper and lead) and the Pinos Altos mine in Mexico (silver).

Alamos Gold Inc.

Alamos Gold is engaged in the exploration, mine development, and the mining and extraction of precious metals, primarily gold. Co.'s s primary asset is the Mulatos Mine and holds the mineral rights to the Salamandra group of concessions in the State of Sonora, Mexico, which includes several known satellite gold occurrences.

AngloGold Ashanti Ltd. ADS

Barrick Gold Corp.

Barrick Gold is engaged in the production and sale of gold, as well as related activities such as exploration and mine development. Co. also produces copper and hold interests in oil and gas properties located in Canada. Co.'s mining operations are concentrated in three regional business units: North America, South America and Australia Pacific. Co. also hold a 73.9% equity interest in African Barrick Gold plc that owns gold mines and exploration properties in Africa. Co.'s copper business unit contains producing copper mines located in Chile and Zambia; and a mine under construction located in Saudi Arabia.


Campbell Soup

Campbell Soup is manufacturer and marketer of food and beverage products. The company's reportable segments are: Americas Simple Meals and Beverages, which includes the retail and food service businesses in the U.S., and Canada; Global Biscuits and Snacks, which includes Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail, Arnott's biscuits in Australia and Asia Pacific, and Kelsen cookies globally; and Campbell Fresh, which includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings, Garden Fresh Gourmet salsa, hummus, dips and tortilla chips and the U.S. refrigerated soup business.

Estee Lauder Cos. Inc.

Estee Lauder Companies is a manufacturer and marketer of skin care, makeup, fragrance and hair care products. The company's products are sold under a number of brand names including: Estee Lauder, Clinique, Origins, MzAzC, Bobbi Brown, La Mer, Jo Malone London, Aveda and Too Faced. The company is also the licensee for fragrances and/or cosmetics sold under various designer brand names, including Tommy Hilfiger, Donna Karan New York, DKNY, Michael Kors, Kiton, Ermenegildo Zegna and Tory Burch. In addition, the company manufactures and sells products under the Prescriptives, RODIN olio lusso and FLIRT! brands. The company also develops and sells products under a license from Kiton.


Franco-Nevada is a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil and gas and other resource assets located in the U.S., Canada, Mexico, Peru, Chile and Africa. Co.'s portfolio includes 340 mineral and oil and gas assets covering properties at various stages from production to early stage exploration.

General Mills Inc.

General Mills manufactures and markets branded consumer foods sold through retail stores. The company has four segments: North America Retail, which provides cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and organic products; Convenience Stores & Foodservice, which provides cereals, snacks, yogurt, frozen meals, frozen dough products, and baking mixes; Europe & Australia, which includes retail and foodservice businesses in the Europe and Australia region; and Asia & Latin America, which consists of retail and foodservice businesses in the Asia and South America regions.

Gold Fields Ltd. ADS

Golden Star Resources Ltd.

Industrias Bachoco S.A.B. de C.V. ADS

Piligrim's Pride Corp.

Pilgrims Pride is primarily engaged in the production, processing, marketing and distribution of fresh, frozen chicken products to retailers, distributors and foodservice operators. The company's primary product types are fresh chicken products, prepared chicken products and export chicken products. The company sells its fresh chicken products to the foodservice and retail markets. The company's fresh chicken products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated and prepackaged case-ready chicken. The company also sells prepared chicken products, including portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads and formed nuggets.

Royal Gold Inc.

Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing precious metal streams, royalties, and similar interests. The company manages its business under two segments: the acquisition and management of stream interests; and the acquisition and management of royalty interests. The company's principal producing stream and royalty interests on properties outside of the U.S. are located in Canada, Chile, the Dominican Republic, Ghana and Mexico. The company also has stream and royalty interests in mines and projects in other countries, including Argentina, Australia, Bolivia, Brazil, Burkina Faso, Guatemala, Honduras, Macedonia, Nicaragua, Peru, Russia, Spain and Tunisia.

Sanderson Farms Inc.

Sanderson Farms is a poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products, including processed and minimally prepared chicken. The company sells ice-packed, chill-packed, bulk-packed and frozen chicken, in whole, cut-up and boneless form to retailers, distributors, and casual dining operators, and to customers who resell frozen chicken into export markets. The company operates through: Sanderson Farms, Inc. (Production Division), which is engaged in the production of chickens to the broiler stage; and Sanderson Farms, Inc. (Processing Division), which is engaged in the processing, sale and distribution of chicken products.

Seaboard Corp.

Seaboard is an agribusiness and transportation company. The company's divisions include: Pork, in which the company engages in the business of hog production and pork processing; Commodity Trading and Milling, which sources, transports and markets wheat, corn, soybeans, soybean meal and other commodities; Marine, in which the company provides cargo shipping services in the U.S., the Caribbean and Central and South America; Sugar and Alcohol, in which the company operates a sugar and alcohol production facility; Power, which owns and operates a power generating barge to produce electricity; Turkey, which produces and processes turkey product; and other businesses, in which the company processes jalapeno peppers.

TreeHouse Foods

TreeHouse Foods is a consumer packaged food and beverage manufacturer operating across the U.S., Canada, and Italy. The company's operating segments are: Baked Goods, which sells candy, cookies, crackers and in-store bakery products; Beverages, which sells broths, liquid non-dairy creamer, non-dairy powdered creamers, powdered drinks, single serve hot beverages, teas, and sweeteners; Condiments, which sells aseptic cheese and pudding products, jams, preserves, and jellies, mayonnaise, Mexican, barbeque, and other sauces, pickles and related products; Meals, which sells baking and mix powders, powdered soups and gravies; and Snacks, which sells bars, dried fruit and other wholesome snacks.

Tyson Foods Inc. Cl A

Tyson Foods and its subsidiaries have a range of products and brands. The company's operations consist of breeding stock, contract growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, Inc., the company is engaged as a poultry breeding stock supplier. The company also processes live fed cattle and hogs and fabricate dressed beef and pork carcasses into primal and sub-primal meat cuts, case ready beef and pork and fully-cooked meats. The company produces a range of fresh, frozen and refrigerated food products. The company's segments are beef, pork, chicken and prepared foods.

Vermilion Research
Vermilion Research

Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.

Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.

Dave Nicoski

Ross LaDuke

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